European gasoline blending components hit record highs

Gasoline blending components -- MTBE, toluene, mixed xylenes -- have hit record high prices in Europe on strong demand from blenders amid tight supply and improved margins heading into the summer driving season.

European gasoline blendstocks have experienced a sharp rise in buying appetite since the start of May on the back of a rising gasoline-naphtha spread and low stocks of octane boosters over the past several months, industry sources said.

The front-month spread gasoline and naphtha rose $37.50/mt in Northwest Europe to a fresh multi-year high at $280.50/mt, S&P Global Commodity Insights data showed.

The divergence between the two markets has diverted more naphtha into the gasoline blending stream.

"There is lots of cheap naphtha around for blending, but it seems that the price of octane boosters is correcting for that," a Europe-based gasoline trader said.

The Northwest European gasoline market has strengthened off the back of increased inland demand and export demand from the US Atlantic Coast as the summer driving approaches. The crack has soared in response to those fundamentals.

The front-month Northwest European gasoline crack was assessed up $3.83/b to $35.69/b on May 12, also a fresh record high.

With the driving season fast approaching, questions remained about production after the International Energy Agency warned May 12 of a "refinery capacity bottleneck".

At the same time, the European naphtha market has weakened due to reduced demand from Asia as Chinese lockdowns continue, shutting the arbitrage to the East.

Additionally, naphtha production has increased as a side effect of maximized middle distillates yields at refineries.

MTBE at record high

MTBE outright prices also hit a 10-year high May 12, surging 444/mt to $1,444.25/mt FOB ARA amid buying interest for spot product in a tight European market.

"The market is short and expected to remain this way for some time," a source said, adding that, in general, Europe was short of octane boosters. "So, blenders are resorting to MTBE."

Another source said it was more a case of demand for MTBE being particularly strong, rather than any specific shortage of MTBE.

MTBE's premium to the front-month Eurobob swap reached a seven-year high May 12 at $259.25/mt.

Outstanding bids seen during the Platts Market on Close assessment process from S&P Global Commodity Insights over May 10-12 highlighted the surge in demand for MTBE.

MX cheaper than toluene

Toluene -- another high value octane booster -- is being highly sought after by blenders for gasoline production, although not from the European region but from the US ahead of its driving season, which is said to start on Labor Day.

Due to that, European toluene reached a record $220.25/mt premium to Eurobob on May 12, up by $20/mt on the day, further surpassing the previous record of $185/mt recorded in February 2019, S&P Global Commodity Insights data shows.

As an alternative, European gasoline blenders were leaning towards mixed xylenes, sources said, due to attractive pricing compared with other blending components.

European MX was priced at a $70/mt discount to toluene on May 12 and at a $78/mt discount to MTBE. Those discounts have been narrowing since late April.

The European MX market entered the recent period of increased demand with ample stocks, which provided another advantage over toluene.

Nevertheless, a buying spree has started to tighten the supply of MX in Europe, with little to no availability for May spot delivery, sources said.

A producer said there was still some product available for June laycans, but it was facing competitions from domestic and foreign gasoline blenders, as the toluene export arbitrage to the US has opened.

Supply of toluene in Northwest Europe has seen a sustained period of tightness, with little available for spot delivery as suppliers honor contractual obligations, as evidenced by the lack of selling interest seen in the Platts MOC process this week despite active bidding.